How to use the IRS withholding tax web tool to avoid a 2023 tax bill
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If you’ve received a surprise tax bill this season, or your refund turned out to be less than you expected, it might be a good time to review your paycheck withholdings.
The IRS collects taxes year-round, typically through withholding paychecks for W-2 employees or through quarterly estimated tax payments for the self-employed. You can expect a refund if you overpaid, or a tax liability for not paying enough.
One way to avoid a 2023 tax bill is to use the IRS Salary Deduction Estimatorsaid Sheneya Wilson, chartered accountant and founder of Fola Financial in New York.
The free calculator shows how your current tax deduction affects your net wage, next year’s refund or your tax bill.
Review “at least mid-year” retentions
Wilson encourages her clients to review withholdings “at least mid-year,” and more frequently for clients expecting higher payments throughout the year. “With the calculator, taxpayers can definitely see if they’re on the right track,” she said.
However, you will need your most recent paycheck, preferably close to your last payment date to ensure accuracy. “With wrong information, it can do more harm than good,” Wilson said.
You should skip the calculator if “your tax situation is complex,” they say the IRSsuch as High Earner Alternative Minimum Tax applicants and certain capital gains.
“The biggest thing is to take stock of what happened last year” and make the necessary adjustments, she added.
Common reasons for changing withholding tax
Normally you complete Form W-4 When you start a new job, learn how much your employer has to withhold from each paycheck for federal taxes. However, there are several reasons why the form may need to be updated and resubmitted to the employer.
For example, there may be family changes such as marriage, divorce, or the addition of a child to the family, Wilson said. Other lifestyle changes, like buying a home or major income shifts, could also impact taxes next year, the statement said the IRS.
The most important reasons for adjusting your withholding tax:
1. Changes in tax law
2. Lifestyle changes such as marriage, divorce, or children
3. New jobs, part-time jobs or unemployment
4. Tax Deductions and Credit Shifts
Of course, withholdings can also stem from personal preferences, like wanting to get a refund every year, said certified financial planner Kevin Brady, vice president at Wealthspire Advisors in New York.
However, if you find you’re not on track, “there’s always an opportunity to make a quarterly estimated payment,” Brady explained.
From April 7th is the IRS issued over 69 million refunds, with an average payment of $2,878, more than 9% lower than the average refund at the same time last tax season.
https://www.cnbc.com/2023/04/20/how-to-use-the-irs-tax-withholdings-web-tool-to-avoid-a-2023-tax-bill.html How to use the IRS withholding tax web tool to avoid a 2023 tax bill